How Strong Is the Art Market?

As auction season begins, here are key indicators to gauge how the global art market will react to a weakening Chinese economy, the euro crisis and $35 million price tags.

Brett Gorvy, who runs Christie's postwar and contemporary art department, and WSJ's Kelly Crow on Lunch Break discuss the key issues that will gauge the health of the global art market this fall. Photo: Christie's.

By

Kelly Crow

October 4, 2012

With the fall auction season kicking into high gear, the global art market is facing a series of critical stress tests. Sotheby'sBID1.14% Hong Kong kicks off a set of Asian art sales on Friday, and next week the rest of the art world will descend on London's Frieze Art Fair for contemporary sales. Then in early November, New York's major fall auctions arrive with roughly $1 billion worth of additional art in tow.

All of these sales should provide some welcome clarity for an art market that's been sending radically mixed signals lately. A string of strong sales last year pointed to a market largely recovered from recession. But some collectors—particularly in China—have grown circumspect in recent months, throwing art values into flux once again. In May, Sotheby's in New York got nearly $120 million for Edvard Munch's "The Scream"—the most ever paid for a work of art at auction—but the following month, the auction house didn't bring in that much from an entire sale of Impressionist and modern art in London, where nearly a third of the offerings went unsold.

Photos: Fall Auction Preview

Some of the world's priciest artworks will hit the auction block this fall at sales spanning Hong Kong, London and New York. Here's a look at few highlights. Christie's

The alchemy of what's selling, or not, can swing wildly in any given season depending on what turns up in the marketplace, but dealers say the overriding dynamic now is one of polarization. Collectors remain eager to splurge on masterpieces, but they're turning their noses up at anything that appears second-tier. That's creating a top-heavy atmosphere that feels heady yet unstable—especially since the majority of artworks trade below the million-dollar mark, dealers say.

Major Miami collector Douglas Cramer thinks the time is ripe to offer up $25 million worth of his contemporary art at Christie's in November, but he still has plenty of burning questions about the overall market's trajectory. "You never know, from one banking crisis to another, what kind of impact it'll have on art prices," Mr. Cramer said. "I just took a deep breath."

The answers to five key questions should help gauge the health of the overall art market going forward.

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Europeans fall hard for Old Masters with proven track records. The Duke of Devonshire is selling this 1465 illuminated manuscript, 'The Mystery of Revenge,' shown in detail, for at least $6.4 million.
Sotheby's

What impact will China's cooling economy have on the market?

Collectors from mainland China played a central role in cushioning the auction houses during the recession, transforming Hong Kong into a sales hub to rival London or New York. Could prices suffer everywhere if the Chinese bow out now? Asian art prices have been hardest hit so far. Christie's sales in Asia were down a quarter during the first half of the year compared to the year before. Sotheby's combined low estimate for its big Hong Kong sales this weekend is $215 million, 31% lower than its sale total last fall.

Michael Frahm, a London-based art adviser who specializes in new Asian art, said private sales of Asian contemporary art approached a standstill this summer. "It's worrying," he said.

The world's chief auction houses—Sotheby's, Christie's, Beijing Poly and China Guardian—are all busy reshuffling their sales strategies as a result. Sotheby's recently partnered with a government-run entity in Beijing to store and sell art. The Beijing-based houses, meanwhile, are trying to tap broader, pan-Asian audiences by holding auctions in Hong Kong.

Moving over to Europe, how much is the euro crisis dampening art sales?

Europeans are still in the game, dealers say, but they're largely playing it safe this season—selling heirloom jewels as needed and buying pieces by older artists from their home countries whose values they trust will hold up. This trend helps Gerhard Richter in Germany and Alberto Giacometti in Switzerland, but it's gutting prices for Italian Baroque and 18th-century Spanish court painters because their hometown crowds aren't buying much at all. "When your country is caught up in austerity measures, you don't want to be seen buying art," said Alex Bell, Sotheby's head of Old Master and British paintings.

Where is the next likely hot spot?

Brazil is gathering steam, but there's no other vast region like Russia or China ready to rally the entire market this round. Still, auction experts are eyeing a few areas like the Caucasus, those oil-rich countries rimming the Caspian Sea. Christie's is prospecting heavily in Azerbaijan this season, shopping its Picassos at an event held last month in Baku's new Four Seasons Hotel. New York dealer David Nash praised Christie's initiative, but said the move just shows how eager auction houses are to harness any wild-card energy. "If they're looking for oil towns, I suppose they'll be turning up next in Lubbock, Texas," Mr. Nash quipped.

Anyone looking for an art-market savior this season should definitely keep an eye on the U.S., because its collectors have dominated just about every major sale in London and New York all year. Americans are also turning out to be some of the season's biggest sellers. New York's November sales of contemporary art are brimming with pieces consigned by collectors like hedge-fund manager Steven Cohen and Mr. Cramer who understand art-market cycles and have been known to score tidy profits over the years by trading artworks in and out of auctions.

What's selling best overall?

There's no way to know yet if this market is nearing another peak, but bellwethers abound, so watch how they fare—from a $35 million Andy Warhol, "Statue of Liberty," being offered at Christie's to a Raphael drawing at Sotheby's that's priced to sell for at least $16 million. Here's a look at how the season's five major collecting categories are shaping up.

Impressionist & Modern Art

Overview: Collectors seeking brand-name artists usually head to this segment of the market, which includes the Impressionists and ends in the World War II era. But do your homework because this area also sees some of the starkest price differentiations between what's considered the best and what's left. Sotheby's got nearly $120 million for Edvard Munch's "The Scream" in May but the sale didn't help four lesser Munchs that have since come to market and bombed.

Outlook: At next month's sales in New York, expect international bidders to play it safe with perennial favorites like Pablo Picasso and rare finds by sculptors like Constantin Brancusi. On Nov. 5, Sotheby's will ask at least $15 million for Picasso's 1936 "Woman at the Window," a rainbow-hued portrait of his mistress, Marie-Thérèse Walter. On Nov. 7, Christie's wants at least $8 million for "Head of a Woman," Pi-casso's 1937 depiction of photographer Dora Maar, the mistress he took up with after Ms. Walter.

Next stop: Azerbaijan. After a handful of oil-rich collectors from Baku turned up at Christie's London sales in February, auction specialists began prospecting for potential bidders there. What are they taking in tow? Colorful paintings by Picasso and Tamara de Lempicka.

Fine print: Russian collectors who played such a big role in the market's last run-up—only to bow out during recession—are filtering back into the modern-art market under certain conditions. Make that flawless conditions: If a painting is slightly damaged or comes with any qualifying remarks about its physical state, auction experts say the Russians will shy away. "Any information like that is considered a negative to the Russians," said Christie's expert Brooke Lampley. Still, she said she thinks a Russian could take home the priciest piece in Christie's Nov. 7 sale, Wassily Kandinsky's 1909 "Study for Improvisation 8." Its estimate: $20 million to $30 million.

Surreal Stretch: Surrealism, the dreamy, cerebral style that thrived in 1920s Paris, spent decades in the market's margins until last year when a collector paid a record-setting $21.7 million for Salvador Dalí's "Portrait of Paul Eluard." Now, auction houses are offering up surreal-seeming works by artists who never exactly embraced the definition, like Joan Miró and Alberto Giacometti. Sotheby's got nearly $37 million for Miró's 1927 "Blue Star" in June, and Christie's is asking at least $12 million in November for Miro's 1925 quirky scene of a woman walking her dog, "To Play." Also redefined as surreal: Giacometti's late 1940s sculptures of body parts. Christie's wants $10 million for a leg. "It's eccentric," Ms. Lampley said.

Affordable alternative: Picasso's post-Cubism still lifes don't turn up at auction as often as his paintings of mistresses, so his 1944 windowsill view of a potted "Tomato Plant" in Sotheby's Nov. 5 sale offers a different slice of his oeuvre. The house is asking at least $10 million for this work, which once belonged to the Whitney family but was bought by the current owner in 2004 for about $7 million.

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'Potted Chrysanthemums'
Sotheby's

Asian Art

Overview: Asian art may span seven regions and six millennia, but its art market is just now grappling with its first major downturn—at least since the Japanese fled the Impressionist field in 1990. This time, it's China whose economy is cooling, and the repercussions are hard to miss.

Outlook: Sotheby's $28 million sale of Asian art in New York last month proves there are still deep-pocketed bidders for Asian art; they're just less willing to splurge on anything but sure bets. Prices for some porcelain pieces are now are down by half, in some cases, from a year ago. On Tuesday, Sotheby's will ask at least $5.1 million for a pair of Qing-era double-gourd vases. "Last year, I could have doubled that estimate without blinking an eye," said Sotheby's expert Nicolas Chow.

Area to watch: 20th-century Chinese paintings. Last year, China Guardian got $65 million for Qi Baishi's 1946 ink painting of an eagle; prices aren't expected to soar that high during the Asia sales in Hong Kong next week, but market watchers will be watching to see how China's modern masters—including Li Keran and Xu Beihong—hold up. China Guardian wants $773,800 or more for Mr. Li's rosy "Sun After the Rain" from 1965 in its sale this Sunday. That same day, Sotheby's will try to get at least $2.6 million for a 1950s still life, "Potted Chrysanthemums," by a Matisse-like modern favorite, Sanyu.

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Display cabinets from the 18th century
Christie's

Affordable Alternative: Chinese furniture. Both Christie's and China Guardian are testing appetites for Ming-era pieces of furniture made from rare rosewood, or huanghuali. Jonathan Stone, Christie's head of Asian art, said collectors who have bought property in recent years "still need to furnish them." On Nov. 28, Christie's will offer up a group of 50 pieces culled from a trio of American collectors—including a pair of large display cabinets from the 18th century, estimated to sell for at least $300,000.

Next stop: Singapore. With more mainland-Chinese collectors staying home this season—in part because Chinese bank lending has grown tight—auctioneers are turning to parts of Asia that feel comparatively carefree, like Singapore. The island city-state is flush with Chinese expats and bankers whose collections include artists from both East and West. It also boasts homes with large gardens. That's why Sotheby's is installing a selling exhibition of outdoor sculptures by Yemeni artist Zadok Ben-David in the Singapore Botanical Gardens on Oct. 23, said Kevin Ching, CEO of Sotheby's Asia. Christie's also shopped its major sale highlights in Singapore last month.

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Gray naturalpearl-and-diamond brooch
Sotheby's

Jewelry

Overview: Few hard assets come in prettier packages, or hold up as well under broader market pressures. Sotheby's jewelry sales are up 19%, to $254.5 million, so far this year compared with last year. Christie's has sold $305 million worth of jewelry in the first half of this year—as much as it sold during all of 2009.

Outlook: Collectors are paying a premium at auction for colored diamonds—particularly in shades of pink and blue—but prices for white diamonds have been flat for the past six months, dealers say. On Nov. 13, Christie's in Geneva still expects to get at least $15 million for a 76-carat diamond once owned by Archduke Joseph of Hungary.

Favored Nation: China's wealthy may have scaled back on buying Asian art, but they're doubling down on rare gems and watches, in part because they are universally prized and therefore potentially easier to resell, says Christie's expert Rahul Kadakia. In May, an Asian collector paid $17.5 million for a 12-carat pink diamond at Christie's in Hong Kong. The priciest jewel in Sotheby's Hong Kong sales next week? An 88.88 carat diamond necklace estimated to sell for at least $4.5 million.

Sign Here: Collectors from Asia and elsewhere are paying a premium this year for jewelry signed by specific designers who worked for major jewelers like Cartier and Tiffany between the Belle Epoque of the late 19th century up through the 1950s. Suzanne Belperron, a pal of Vogue editor Diana Vreeland who designed for Art Deco-era jeweler Boivin in the 1920s, is particularly popular now. In May, Sotheby's got nearly $500,000 for her 1935 marquise-shaped rock-crystal-and-diamond ring, six times its high estimate.

Object to watch: After ceding market share to cultured pearls for most of the 20th century, rare, natural pearls are enjoying a sudden comeback this season. Last December, Christie's reset the record for a natural pearl when it got $11.8 million for Elizabeth Taylor's 16th-century Peregrina pearl necklace. On Dec. 5, Sotheby's will try to get at least $400,000 for a gray natural-pearl-and-diamond brooch.

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'Head of a Young Apostle'
Sotheby's

Old Masters

OVERVIEW: Sales were largely flat last year for European art spanning the 14th to the 19th centuries, but the Renaissance men appear to be enjoying a comeback this season: Christie's $133.4 million Old Master and British paintings sale in July was the house's highest-ever total for the category, thanks to collectors from 22 countries like Brazil and Russia, plus an influx of first-time bidders. Demand remains soft at both auction houses for middling pieces in the $50,000 to $200,000 range, though.

Outlook: Expect collectors to keep ratcheting up prices for masterpieces while sniffing at anything that feels lackluster. The same divergence shows up in the market for Old Master drawings and medieval manuscripts. In December, Sotheby's will try to get at least $6.4 million for a two-volume play, "The Mystery of Revenge," illustrated in a 1468 manuscript originally commissioned by a French duke called Philip the Good. (No word if the play was as well-received.)

New Name Here: With Old Master paintings continually trickling out of the marketplace and into museums, top pieces remain in short supply. That's one reason why auction houses invest heavily into seeking attributions for works that may have been deemed anonymous or wrongly labeled over the centuries. In July, Christie's got $7.9 million for a scene called "Christ Between Saints Paul and Peter" after scholars agreed to attribute the piece to 14th century painter Pietro Lorenzetti.

Artist to Watch: Joachim Anthonisz Wtewael. This little-known Dutch painter scored a coup when Christie's sold his long lost Roman love triangle scene from 1610, "Mars and Venus Surprised by Vulcan," for a record-setting $7.2 million in July. On Dec. 4, Christie's will try to capitalize on Wtewael's breakthrough by selling a later panel from 1623, "Charity," for at least $644,000.

Market Mover: New York financier Leon Black reset price levels for Old Master drawings three years ago when he paid $47.6 million for a Raphael chalk drawing, "Head of a Muse," a record auction price at the time for a work on paper. Now, the Duke of Devonshire is asking Sotheby's to sell one of his 15 Raphael drawings, "Head of a Young Apostle," for at least $16 million in December. The work amounts to a preparatory sketch for Raphael's 1520 painting of the Transfiguration, which hangs in the Vatican.

Contemporary Art

Overview: Art history is still mulling the lasting merits of today's living artists, but that hasn't stopped collectors from placing bets now. The market's most speculative sector, which spans art made between 1945 and today, saw prices plummet by as much as 66% during the recession, only to surge back up quickly—especially for well-known artists like Gerhard Richter.

Outlook: Brace for sticker shock. Contemporary-art auctions rarely totaled more than $30 million a couple of decades ago, said Christie's specialist Brett Gorvy. "Now, collectors will spend $30 million to win a single painting." At least three contemporary paintings carry price tags north of $25 million this season alone: Mark Rothko's 1954 "No. 1 (Royal Red and Blue)" and Jackson Pollock's "Number 4, 1951," both at Sotheby's, and Warhol's 1962 "Statue of Liberty" at Christie's.

Market Movers:Hedge-fund manager Steven Cohen is wagering heavily on the contemporary market's strength by asking Christie's to help him sell Richter's 1983 abstract "Prag 1883" for at least $15 million on Nov. 14. New York collector Donald Bryant is also offering up "Marlon," Warhol's 1966 portrait of "The Wild One" actor Marlon Brando at Christie's for at least $20 million. (Warhol's much-larger version of the same image sold for $32.5 million at Christie's four years ago.)

Artist to watch: The auction record for Warhol's protégé Jean-Michel Basquiat has been reset twice this year—one of his paintings sold for $16.3 million at Phillips de Pury in May, followed by another for $20.1 million at Christie's in June. Now, society photographer Patrick Demarchelier has asked Christie's to get $20 million-plus for his untitled Basquiat from 1981, which depicts the artist holding a dangling catfish.

Richter's Reach? Prices have topped $21 million lately for Richter's squeegee-smeared abstracts, but Sotheby's plans to test demand for the artist's family portraits on Nov. 13 by selling two paintings, both titled "IG," depicting Richter's second wife, artist Isa Gentzken. Asking price: $3 million apiece.

Affordable Alternative: With prices for top postwar paintings routinely surpassing $10 million now, collectors with smaller wallets are increasingly turning to these artists' drawings, where prices rarely reach half as high. This fall, Mr. Cramer, the Miami collector, is selling off around 50 works on paper at Christie's, including an early Roy Lichtenstein drawing of basketball shoes. Estimate: at least $2 million.

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